[ScottBurson]

So this is where Sarbanes-Oxley has gotten us: to where it's so painful to run a public company that companies put off their IPO much longer than they would have, so people figure out how to trade the stocks anyway -- but in doing that, they have to go on far less information than they would have had, pre-Sarbanes-Oxley, when the company would already be public.

The law of unintended consequences is alive and well.

[nostromo]

It reminds me of our response to the 2008 crisis.

We all learned the dangers of having banks that are too big to fail. But now we have fewer banks than at any time since the great depression, in part because Dodd-Frank is more difficult for small banks to follow than the large banks.

http://www.wsj.com/articles/SB100014240527023045794045792323...

[MCRed]

(This issue hits politics, and below I give an illumination of why conservatives and liberals should both be concerned. But please note I'm not taking any position other than that people should learn more about the Federal Reserve.)

One of the "reforms" that was enacted in response to the 2008 crisis was to give the Federal Reserve regulatory powers. They now get to decide whether banks are "viable" or not and if they are not viable, can force them to merge with candidates of the federal reserves choosing.

This might sound reasonable to you, if you focus on the "Federal" part of the name and that makes you think of the Federal Reserve as an agency of the federal government (like the DEA or FCC)... but the reality is that the Federal Reserve is a commercial, for profit, bank owned by major banks. (The ownership is kept secret but the owners of the "too big to fail" banks are highly correlated with ownership in the fed.)

Thus you have a bank which has way too much power to begin with -- it literally profits by issuing US government debt-- able to force mergers of smaller, potentially competitive banks, with its owners.

This means that the owners of Morgan Stanley can force banks that might be competitive with Morgan Stanley into Morgan Stanley on terms that are good for Morgan Stanley, via the hand-wave of having the "Federal Reserve" decide that the target bank is "in danger".

I'm not giving you conspiracy theory, this is the literal facts of how the Federal Reserve was set up and is run. For an authoritative account of the history of the Federal Reserve read "The Creature from Jekyll Island".

Liberals are often very concerned about the corruption of government institutions or misuse of government power by corporations-- this is a far more relevant and dangerous example than most others of this action.

Conservatives are often very concerned about the undermining of the sovereignty of the country and the federal government, and here we have a major group that has massive control over the federal government (it is the Federal Reserve that enables deficit spending). Since conservatives oppose deficit spending, this institution is a key enabler of the massive government debt they are concerned about.

Everyone with a passing interest in finance and economics should really read this book. The Creature from Jekyll Island is wonderfully written and not too dry. (Lots of historical anecdotes and since they are from within the last 100 years they are pretty relatable.)

[paul]

On the other hand, the .com bubble was driven in large part by the ability of VCs to flip junk onto naive retail investors.

The fact that venture investors now need to wait many years for an exit (and the startups can really only access institutional capital during that time) helps keep things a lot more grounded in my opinion (though I'm sure many will disagree).

[gfodor]

Don't worry, the SEC will eventually fully open the doors to retail investors investing in private equity. Imagine the bubble when the companies don't even have to disclose the bad news!

[paul]

Yeah, I'm not convinced that's a good idea, but I think they are at least putting some extra limits in place so that they won't gamble their whole 401k away.

[gfodor]

They say Americans learn about geography though war -- I'm going to say they learn about economics through financial crises. Most people don't understand private equity markets (like they didn't understand CDS's, etc) so it's certainly in the list of contenders for the next crisis.

[davmre]

I'd wager most people don't understand CDS's even now.

[tsotha]

Even professionals in the industry don't understand CDS's. Some of them are deliberately complicated.

[ScottBurson]

I should have clarified that I don't think that SOX is totally a bad thing. It's just that the problem it's addressing is an exceedingly difficult one; it's not too surprising that unintended consequences should crop up. I do suspect this is an indication that SOX went somewhat too far, though.

[notjustsox]

SOX was so powerful that it managed to caused an 80% decrease in IPOs before it was even passed! And then, after it was passed and enacted, IPOs went down by -174%. Oh sorry, that means that once it was passed and enacted, IPOs went back up by 174%.

There are a lot of factors at work here, ranging from macroeconomic factors, to changing industry structures in both tech and finance. SoX is a factor to be sure, but it's not the only factor.

And besides... if SoX means I get liquidity on private company shares, then hooray for SoX.